Christopher Mims, writing on Quartz, the Atlantic?s smart business-and-economics blog, either has superb timing or is actually incredibly influential. Or both. His piece, ?Five reasons Apple (AAPL) has peaked?for real, this time,? coincides with a steep tumble in the gadget maker?s shares.
AAPL data by YCharts
Mims? argument, which is in many ways persuasive, could be boiled down to this: Apple isn?t cool anymore; the tech kids aren?t in awe any longer, and they are well ahead of flat-footed investors in these matters; and Apple is actually following the lead of other tech companies, notably with its smaller iPad, instead of leading.
Perhaps so. But let?s ever-so-briefly go through those elements of the Mims argument.
?Isn?t cool: that?s a little like saying nobody in L.A. or New York is wearing that brand of jeans anymore (and of course what that really means is nobody in Williamsburg or Silver Lake is wearing them ? plenty of people on the Upper West Side and in Santa Monica are, never mind all of us between the coasts).
?Tech kids get bored quickly. True, they?re leading indicators on this stuff, sometimes. But, geez, PCs? run was surely many, many years longer than tech kids? infatuation with the devices. Tech kids may think 99% of Americans are stupid, but that?s 99% of the buying power, too, and the Apple brand has become amazingly strong with us uninformed consumers, a default almost.
?Apple is following: what?s new about that? Steve Jobs, by several accounts, swiped much of his Mac thinking from the poor bastards at Xerox, and no doubt he copied things since then, too. Apple is a refiner, not an innovator, and the beauty of its devices is in how well they pull together the available functions and features. The concern here shouldn?t be whether Apple is swiping ideas, but weather it?s doing so smartly and aggressively enough.
Perhaps most importantly, even if it stumbles with a major product ? and it really hasn?t of late ? Apple has the time and good will of customers to recover.
Apple is a juggernaut, and a few dissatisfied geeks aren?t going to immediately derail it.
AAPL Revenue TTM data by YCharts
The company has more than $120 billion in the bank, piling up faster than it can declare dividends or buy back stock. Its R&D expense for the year ended September 29, 2012, was a mere $3.4 billion, suggesting it can afford to have the boys in the lab work a little overtime, if it?s called for. And it can certainly acquire companies to bring innovation in-house.
What?s more, recent history suggests Apple is acutely self-aware and self-critical, so lapsing into self-congratulatory decline seems unlikely.
Behind the recent decline is the fact that, even at its low PE ratio, Apple has been a momentum stock, with professional and amateur investors alike jumping aboard in part because they were afraid to miss out on the profits being made. The PE suggests a value crowd is in the stock (plenty are and plenty more will be), patient people who look at results more than the stock?s ups-and-downs. But look at all the day traders yammering about their Apple options positions on StockTwits.
AAPL PE Ratio TTM data by YCharts
They?re bailing. That doesn?t necessarily mean you should.
Jeff Bailey is the editor of YCharts, which includes the just-released YCharts Pro Platinum for professional investors.
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